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1 1 (December 2, 2022)

handle is hein.crs/govejph0001 and id is 1 raw text is: SCon gressionaI ~.Research Service Supreme Court Ponders Bankruptcy Code's Good-Faith Purchaser Exception December 2, 2022 In MOAC Mall Holdings LLC v. Transform Holdco LLC (MOAC), the Supreme Court will determine whether Section 363(m) of the Bankruptcy Code limits appellate courts' jurisdiction to reverse a sale to an entity that purchased property in good faith during a bankruptcy. MOAC also implicates Section 363(b) of the Code, which allows debtors to sell assets prior to or instead of confirming a bankruptcy plan, and Section 365 of the Code, which allows for the assumption and assignment of leases. This Sidebar proceeds in five sections. First, it introduces Section 363 and the sale process under Section 363(b). Second, it discusses Section 363(m), which limits appellate review of a Section 363(b) sale to a good-faith purchaser, and analyzes how courts interpret this Code provision. Third, it summarizes the factual and procedural history of MOAC. Fourth, it recounts the parties' arguments before the Supreme Court. Fifth, it offers considerations for Congress. Section 363 Overview Section 363 applies to proceedings under both Chapter 7 of the Bankruptcy Code, in which a debtor seeks a fresh start through liquidation, and Chapter 11, in which a debtor seeks to confirm a reorganization plan. Section 363 is available to both a trustee in a Chapter 7 bankruptcy-a court-appointed official who administers the debtor's estate to maximize recovery for creditors-and a debtor-in-possession in a Chapter 11 bankruptcy, who has the same rights and obligations as a trustee. For convenience, this Sidebar hereinafter refers to the entity availing itself of Section 363 as the trustee. Section 363 empowers a trustee to use, sell, or lease property of the debtor's estate, both in the ordinary course of business and outside the ordinary course of business. Courts have fashioned two tests to determine whether a transaction is in the ordinary course of business, the horizontal dimension test and the vertical dimension test, also known as the creditor's expectation test. Under the former, the court asks whether the transaction is the type that similar businesses would engage in as ordinary business. Under the latter, the court views the transaction from the perspective of a hypothetical creditor and asks whether the transaction subjects the creditor to different economic risks than the ones he accepted when he initially extended credit. Congressional Research Service https://crsreports.congress.gov LSB10870 CRS Legal Sidebar Prepared for Members and Committees of Congress